Etsy (ETSY) Up 3.7% Since Last Earnings Report: Can This Continue?

It’s been about a month since Etsy (ETSY) last reported earnings. Shares have risen about 3.7% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Etsy headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

ETSY’s first quarter earnings miss estimates, revenues grow year over year

Etsy reported first-quarter 2024 earnings of 48 cents per share, missing the Zacks Consensus Estimate by 2.04%. The financial result reflects a year-on-year decline of 9.4%.

Revenue increased 0.8% year-over-year to $645.95 million. This number missed the Zacks Consensus Estimate by 0.4%.

The increase in revenues resulted from growing revenues from services.

Strong momentum among active sellers and reactivated buyers remained positive.

Top line in detail

Marketplace revenue was $466.98 million (72.3% of total revenue), down 0.1% from the prior-year quarter. Nevertheless, ETSY gained 5.7 million new buyers, which is a big plus. The total number of active buyers on the Etsy marketplace was 91.6 million, up 1.9% year over year.

Services revenues were $178.97 million (27.7% of total revenues), up 3.2% year-over-year. Etsy ads have played a key role in driving revenue growth.

Quarterly details

Active buyers on Etsy increased 0.9% from the previous quarter to 96.4 million, missing the consensus estimate of 96.6 million.

The active seller base was 9.13 million, up 15% year-on-year. The figure fell short of the consensus figure of 9.3 million. Increasing investments to support sellers with new tools and insights, such as the “Growth Page” featuring customer insights to help sellers grow their business and a new “Earnings Calculator” that helps sellers understand the various factors impacting their profitability, has had a positive impact impact impact on the growth of the seller base.

ETSY has seen a significant increase in buyer reactivation. There were 6.3 million reactivated buyers, up 5.9% year-on-year.

Gross merchandise sales (GMS) of $3 billion decreased 3.7% on a reported basis and 4.1% on a currency neutral basis compared to the prior-year quarter. The reported number is below the Zacks Consensus Estimate of $3.05 billion.

Etsy Marketplace GMS was $2.6 billion, down 5.3% from last year’s quarter.

Operational details

In the first quarter of 2024, gross margin was 71%, up 150 basis points year-over-year.

Total operating expenses were $390.73 million, up 6.4% from the prior-year quarter. As a percentage of revenue, the percentage increased to 60.5% from 57.3% in the year-ago quarter.

As a result, ETSY reported operating income of $68.1 million, compared to operating income of $78.2 million reported in the prior-year quarter.

The story continues

Balance sheet and cash flow

As of March 31, 2024, total cash and cash equivalents were $788.84 million, down from $914.32 million as of December 31, 2023.

Short-term investments were $254.88 million, up from $236.12 million in the prior quarter.

At the end of the first quarter, long-term debt was $2.28 billion, unchanged from the end of the previous quarter.

The company generated $69.03 million in cash from operations in the first quarter of 2024, up from $295.1 million in the prior quarter.

Conductivity

Etsy anticipates a demand rate in Q2 2024 similar to the actual Q1 2024 result of 21.6%.

GMS is expected to decline, with the downside being a mid-single digit decline and the upside being the high end of a low single digit decline

The adjusted EBITDA margin is expected to be close to the 26% reported in Q1’24.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates.

As a result of these changes, the consensus estimate moved -8.5%.

VGM results

Etsy currently has a great Growth Score of A, although it lags well behind its Momentum Score of D. Plotting a somewhat similar path, the stock is rated a C on the value side, placing it in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Etsy has a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Etsy belongs to the Zacks Internet – Services industry. Another company in the same industry, Alphabet Inc. (GOOG), has gained 3% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Alphabet reported revenue of $67.59 billion, representing a year-over-year change of +16.4%. EPS of $1.89 for the same period compared to $1.17 a year ago.

For the current quarter, Alphabet is expected to report earnings per share of $1.87, which would represent a year-over-year change of +29.9%. Over the past 30 days, the Zacks Consensus Estimate has moved +0.1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Alphabet. The stock also has a VGM Rating of D.

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